Analysts said the unemployment rate will likely continue rising for the remainder of the year, possibly topping 5 percent, even if the stalled-out economy shows signs of a widely predicted pickup over the next six months.

The jobs report helped drive down a stock market already gloomy over poor earnings prospects. The Dow Jones industrial average of blue-chip stocks plunged 227.18, while the Nasdaq index of small and medium-sized firms fell 75.95. The Standard & Poors index of 500 industrial stocks was down 28.65.

Employment losses were worse than expected last month. Business payrolls fell 114,000, chiefly through a 113,000 decline in manufacturing jobs.

But service-producing jobs increased by only 5,000, the smallest rise in 10 months. And in some service-industry sectors, employment went down, a sign that the manufacturing recession may be spreading to white-collar jobs.

Since the first of the year, the number of factory jobs has fallen by 580,000.

One sign that the manufacturing recession may be touching other areas of the economy was a drop of 21,000 in temporary jobs, the ninth straight monthly decline. Some, but not all, of these workers were involved in manufacturing activity, analysts said. Wholesale trade jobs in the services sector were down, too.

On top of that, total hours worked by employees in the economy in June fell by 0.2 percent, the report said. For the second quarter, total hours worked were down 1.5 percent, the first negative quarter since 1992, noted Brian Wesbury, chief economist at Griffin, Kubik, Stephens & Thompson of Chicago.

Economists are pinning their hopes for a modest second-half rebound on the $300 to $600 tax rebates that will soon be mailed to Americans by the Treasury Department.

Also, they said, lower interest rates and energy prices will increase purchasing power just as layoffs are hurting sales.

But apprehension about the outlook prevails. Increasing unemployment, while generally seen as an indicator that lags economic activity, nonetheless can have a potent impact on psychology. Consumer retrenchment, either through job loss or job anxiety, could drive down the economy, said Pierre Ellis, economist for Precision Economics in New York.

"Right now, the economy is in a very delicate balance," said Ellis. "We might pull through it without a more serious decline, and we might not."

"Jobs growth is just too weak for consumption to hold up in the months ahead," Wesbury wrote in an analysis titled "Recession Watch."

But most analysts said the rise in joblessness this year will be contained. Robert diClemente, chief economist at Salomon Smith Barney, and Jonathan Basile, economist at First Boston Credit Suisse, cited the tax rebates and lower interest rates as forces that will help ward off a recession.

Also, they said, businesses are stepping up their purchasing from manufacturers, as indicated by a purchasing managers report early this week.

"I feel we are at the bottom of an economic cycle right now," said Sung Won Sohn, chief economist for Wells Fargo Bank. "Before dawn, things already look pretty dark. At a turning point like this, you expect lagging indicators like the unemployment rate and corporate profits to look pretty lousy."

Added David Wyss, chief economist at Standard & Poor's: "Except for manufacturing, we are hanging in there pretty well."

But Jared Bernstein, jobs-market analyst at the Economic Policy Institute, said he saw no jobs recovery anytime soon and only a modest increase in economic activity from the tax rebate. He noted that private sector jobs in the second quarter went down by 350,000, a sign to him that "the labor market is likely in a recession."

Many analysts don't foresee a pickup in business investment, a sign of a brighter jobs market, until next year. In the technology sector, overbuilt during the economic boom, investment may not return for two years, said Sohn.

The strong dollar is also having an impact on the economy's weak performance, said David Huether, economist for the National Association of Manufacturers. But the Bush administration has shied away from steps to reduce the dollar's value, which makes exports more expensive and imports cheaper.

Huether predicted a turnaround in manufacturing in the fourth quarter. The Federal Reserve's lower interest rates and the tax rebate will provide the impetus, he said. Another interest rate cut by the Federal Reserve is likely in August, if not before, analysts said.

DiClemente of Salomon Smith Barney said he saw an economy "in different stages of revival," with some sectors on the rise and some in decline. In general, he said, "It is slowly making its way toward recovery."

Ellis of Precision Economics wasn't as sure the economy could avoid a recession. "What will determine it is what the consumer does," he said. "The negatives for the consumer are accumulating."

To Ellis, the next few weeks will be critical in determining whether the economy will begin to show some strength.